How Much Money Should You Save Each Month?

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It’s important to save money for several reasons, including when an unexpected expense comes up, for going towards a big purchase like a house down payment, or for retiring in the future.

You may be wondering how much money should you save each month so that you can reach future financial goals or so that you’re protected from life’s money curveballs.

Guidelines from financial experts suggest saving 20% of your income each month, and this is a good start, however, each person’s situation is different, and you may find that you need to save more, or possibly less, depending on how old you are and how much money you’ve saved so far.

In this article, we’ll discuss how much money you should save each month, how to save money, what to do with your saved money, and why saving money is important.

Let’s jump in.

How Much Money Should You Save Each Month?

The 50/30/20 budget guideline, coined by Senator Elizabeth Warren in her 2005 book “All Your Worth: The Ultimate Lifetime Money Plan,” states that 50% of your income should go to your necessary expenses, while 30% should go to discretionary spending, and 20% should go to savings.

Saving 20% of your income is an excellent place to start, and there may be situations where your need more or less money.

For example, if you are closer to retirement and don’t have much money saved up, you may need to save a higher percentage so that you can retire at the age you want and with enough money.

Another example would be if you’re in your mid-20s and you plan to retire young. You would struggle to retire at 40, hypothetically, if you only saved 20% of your income, unless you are currently making a lot of your future living expenses are very little.

Some people who seek to retire early opt to save 50% of their income or more.

In general, though, saving 20% of your income will help you have enough money for emergencies, pay down debt, and give you an ample nest egg later in life.

More on the 50/30/20 Rule

With the 50/30/20 rule, your goal is to save 20% of your income. What do you do if your necessary expenses amount to significantly less than 50% of your income?

In this case, you could opt to save more money or spend more on discretionary spending.

The same is true if you live a simpler life and don’t spend much on things you don’t need.

Your financial and personal goals should dictate how much money you save in this situation.

Determine How Much Makes Sense to You

Everyone’s financial situation is different, and you may need more money in the future than others you know. On the other hand, the opposite could also be true, and you may need less money.

Factors like lifestyle, where you live, your health, and your income potential all factor into how much money you should save monthly for current and future needs.

One idea is to create a budget to see how much you spend each month on necessary and unnecessary expenses. 

If you can cut back on unnecessary expenses, then you’ll find opportunities to save.

Use Clean Cut Finance’s free home budget spreadsheet to make a budget for yourself so that you can identify more ways to save.

Start Small and Work Your Way Up

You might be in a situation where saving money is challenging. For example, you might be left with next to nothing after all your monthly bills. 

In this case, start small, even if it’s just $10 per paycheck. While saving $10 per paycheck might not add up to a lot, it will get you into the habit of saving money.

As you get used to saving money, you can start looking for opportunities to save more with each paycheck.

If you can work your way up to $20 per week, that’s $1,040 in a year, which is an excellent amount of money to create an emergency fund.

You could also apply $20 per week towards a credit card balance which would significantly reduce the amount of time it would take to pay back the card had you only been paying the minimum payments. 

This also significantly reduces the total interest you’d pay if you pay an additional $20 per week over the minimum monthly payment.

Eventually, you can start saving for bigger goals, such as a down payment on a house, a big vacation with your family, or simply to become debt-free.

How To Save Money Each Month

There are many ways to save money each month, and here are five quick ones you can implement to get you started.

Live a More Frugal Lifestyle

Living a more frugal lifestyle is one of the most effective ways to save more money each month. The reason is simple.

When you live frugally, you forego spending money on things you don’t need – for the most part. You don’t deprive yourself of fun, but you find fun things that cost less and focus on saving.

Use Meal Planning

Meal planning involves coming up with a week or month’s worth of meals ahead of time, usually written down. When you meal plan, you can shop smart for groceries and often save quite a bit on your food bill.

Since food is one of the highest expenses most families have next to their rent or mortgage, it definitely helps to cut this expense where possible.

Meal planning can also reduce mealtime overwhelm because you and your family always know what’s being prepared at each planned meal instead of feeling frantic as mealtime approaches.

Cancel Unused Subscriptions

You may have subscriptions you’re paying for that you don’t even know. Companies capitalize on the fact that many people will continue to pay for subscription-based services after they stop using them.

Two effective ways to get rid of unused subscriptions so that you can save money each month are:

• Review your bank and credit card statements. Look for recurring charges, as those generally signify a subscription. Ask yourself if you’re still using that service or if you need that service.
• Check out the app Trim. Trim identifies and can automatically cancel subscriptions you’re no longer using. The app can also negotiate how much you pay for cable, internet, insurance, and phone. Trim is a “mostly free” app because you only pay a portion of how much the app saves you.

Consider this. If you’re paying $10 per month for a subscription you’re not using and cancel it, that’s $120 you’ve saved over the next year. 

Increase Your Income

You can only lower your living expenses so much before there’s nothing left to cut. But, on the other hand, income can be increased limitlessly, depending on what you’re doing.

Here are common ways to bring in more money:

• Work overtime: If your job lets you take an extra shift, you could use the extra hours to put towards savings or pay down a credit card, for example.
• Take on a second job: This may be less ideal if you’re already very busy in life or you’re worried about burning out. That said, working a second job, even if it’s temporary or for a few hours a week, can add significant extra money to your wallet over the course of a year.
• Ask for a raise: If you’ve been doing extra work at your job, you might be able to ask for a raise. Another way to be more valuable to your company is to ask your boss what issues he’s struggling with on the job and see if you can help him solve those issues. Solving company issues for your boss may impress them enough to give you a raise.
• Pick up a side hustle: Similar to a part-time job; a side hustle is something you do in your free time to make more money. The difference is that you generally do a side hustle on your own schedule.

• Use your savings to make you more money: You could opt to invest your money in a brokerage account where you buy stocks that pay you a dividend. You may not make a lot of extra money this way at first, but this strategy essentially pays you passive income.

Aggressively Tackle High Interest Debt

If you’re not paying off your credit card balance each month, then you’re paying interest, which adds up over time.

Since credit card debt generally has the highest interest rates of typical types of debt, it makes sense to pay down your debt as quickly as possible so that you no longer have to pay interest.

Additionally, if you have payday loans, you’ll want to pay these down right away, as payday loans have notoriously high interest rates.

Places to Put Saved Money

Once you start regularly saving money, you’ll want to put it in one or more places so that you can reach your financial goals. Here are some places to put money that you save each month.

A High-Yield Savings Account

A high-yield savings account is a great place to start an emergency fund. For example, if you can save $1,000 in a high-yield savings account, you can cover most unexpected expenses.

A Retirement Fund

A retirement fund such as a 401(k) or Roth IRA is an excellent place to put money that you save as you can use that money in the future when you no longer want to work.

Different types of retirement funds have different pros and cons. For example, with a Roth IRA, you pay taxes on your money before you contribute it, and your money grows tax-free for when you withdraw it, provided you withdraw it after you reach 59 ½ years of age.

Invested Into The Stock Market

You could opt to open a brokerage account and invest your money into the stock market, where it can grow. 

Using a brokerage account instead of a retirement account makes your money available to you immediately instead of later on though taxes work differently in standard brokerage accounts compared to retirement accounts.

Applied Towards Debt

Using saved money to accelerate paying off debt especially makes sense if you have a lot of consumer debt, such as high interest credit cards, payday loans, or personal loans.

Paying down debt faster can save hundreds, if not thousands, of dollars in interest.

Used to Purchase Income-Producing Assets

Saved money can be used for buying income-producing assets, which pay you in intervals. Income-producing assets include:

• Dividend-yielding stocks
• Real estate rental properties
• A business that you own but may or may not operate

• Anything that you rent out regularly and are profiting off of

What To Do If You Can't Save 20%?

If you can’t save 20% of your income, it’s best to save any amount that you can and gradually work your way up to 20% or the savings goal you set for yourself.

In this case, if you continue to struggle, consider talking to a friend or family member who is financially savvy, as long as you trust them on money topics. You can also talk to a financial advisor if you can afford to and feel that it makes sense.

Saving Money Based On Your Goals

If the 50/30/20 rule doesn’t feel suitable for your situation, then consider writing down your goals for the future and figure out how much money you’ll need for them.

Then, work with a calculator to see how much money you’ll need to save each month.

If you’re saving for a major purchase, then you may need to increase your savings significantly, and that’s what a calculator is good for.

Why Saving Money is Important

Saving money is important because of a few reasons, namely that:

• You never know what will happen in the near or distant future. Unexpected events occur all the time, and you never know what the financial cost of those events will be. By saving money in advance, you don’t have to worry about sinking into debt when they occur.
• You’ll be able to experience more in life. Having more money means being able to afford nicer things for yourself and more experiences such as trips to exotic places or simply on fun family vacations.
• You won’t owe money to others. Being in debt can feel crushing as there’s always that worry that you won’t be able to pay up when the time comes. Having money saved means you’ll always have money to pay debts as they are due.
• You’ll be able to retire when you want. Saving money allows you to retire at a reasonable age instead of working until you’re into your advanced years.

Wrapping It Up

When it comes down to it, the amount of money you need to save each month is based on your financial situation, but 20% is the generally accepted number by many financial experts.

If you’re saving considerably less or not at all, then focus on incrementally saving more money each month until you’re at a comfortable target.

Don’t be afraid to seek help if you’re struggling to stay on top of your finances.